By Bhavik Patel
Gold and silver both have rallied strongly this week on the back of weak US data. The Labor Department reported job openings fell in February to the lowest levels in nearly two years. To add woes to the economy, US factory orders also were down by 0.7%. This weak US economic data shot US dollar down as markets are not anticipating no rate hike in next monetary policy and rate cut by September meeting. Friday’s US Non-farm payroll data will be very important for gold as if that data comes weaker than expected, expect the rally in gold to continue.
Gold is not just getting support from weak US dollar and Treasury yields but also from physical buying by Central banks. According to the latest data released by the World Gold Council (WGC), central banks kept adding gold to their reserves in February, marking the strongest start to the year since at least 2010. Global gold reserves increased by 52 tonnes in February, rising for the 11th month in a row. Year-to-date, central banks’ net purchases stand at 125 tonnes and is the strongest start to the year since 2010.
Market is clearly in risk-on mode as a comment from the JPMorgan Chase CEO that the banking sector is still in turmoil and the damage from the crisis will linger for a long time. This also spooked the market which thought that the banking crisis had been averted. Gold shot $40 after the comment and publication of weak US economic data. If Non-farm payroll data came disappointing, then that would feed speculation of Fed pivoting which will ultimately support gold bulls.
Currently the market is looking at consolidation around the highs of 61,000 and any pullback cannot be ruled out as the market is in an overbought zone. Next trigger would be Friday’s NFP and disappointing data could lead to fresh rally. We believe pullback till 60,000 cannot be ruled out and so traders should not chase price at such high levels but wait for some pullback. Any long positions can also be partly booked and could trail stop loss around 59,500. Any fresh calls should be taken next week after NFP data are released.
(Bhavik Patel is a commodity and currency analyst at Tradebull Securities. Views expressed are the author’s own. Please consult your financial advisor before investing.)